Talks with investment managers for oil money premature – Opposition Leader

Dec 19, 2018 News

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Courting investment managers for Guyana’s Sovereign Wealth Fund (SWF) at a time when there is no fund and no money is simply putting the cart before the horse.
Opposition Leader, Bharrat Jagdeo said this on Monday.
Giving his take about government being in talks with Merrill Lynch, Jagdeo said, “It is premature at this point. A lot of people will come to Guyana and some will be carpetbaggers, looking to make a quick buck at the expense of our people and country.”
Jagdeo said that the government will do well to take its time.
“We have to learn to sift them through, look at their CVs, track record; who delivers the greatest returns on funds managed over a long historical period; who has pretty safe investments… Right now you are going to have anyone under the sun coming here to try to be the fund managers. So we will see all of these people coming in now, Merrill Lynch and everybody else.”

The Opposition Leader said that it is simply a case of Merrill Lynch trying to get into position. “We do not even have money in the fund as yet, but we have people coming as fund managers.”
Jagdeo even said, “They are trying to position themselves, hoping to strike some corrupt agreement that will force us to use them as our fund managers. We believe it is premature.”
Jagdeo said that the government will do well to employ a different strategy.
He said that the government can, when the time is right, handpick the companies it wants.
The Opposition Leader said, “You can say here are 10 companies that we would like to manage our fund. Once you define the parameters through which they will manage the fund, you will then go and make a sales pitch to each of these companies.”
He said that Government can then decide which of the prequalified companies have the best management plan along with the rates more favourable to the country.
Jagdeo said, “So assuming someone says I want one percent as a fund manager and another which is equally qualified and has a great track record says I will take 0.5 percent, then you know what to do.”

WORRYING PAST
Earlier this year, Merrill Lynch had expressed its interest to the government to potentially help manage the nation’s oil wealth. But nothing was said by the government on taking precaution with the company given its history.
On Sunday, Kaieteur News presented a comprehensive overview of the entity’s troubling past.
In that feature, it was noted that in June 2016, the Securities and Exchange Commission (SEC) announced that Merrill Lynch agreed to pay US$415 million and admit wrongdoing to settle charges that it misused customer cash to generate profits for the firm and failed to safeguard customer securities from the claims of its creditors.
In fact, an investigation found that Merrill Lynch violated the SEC’s Customer Protection Rule by misusing customer cash that rightfully should have been deposited in a reserve account. The probe revealed that Merrill Lynch engaged in complex trades that lacked economic substance and artificially reduced the required deposit of customer cash in the reserve account.
The maneuver freed up billions of dollars per week from 2009 to 2012 that Merrill Lynch used to finance its own trading activities. Had Merrill Lynch failed in the midst of these trades, the firm’s customers would have been exposed to a massive shortfall in the reserve account.
Merrill Lynch further violated the Customer Protection Rule by failing to adhere to requirements that fully-paid for customer securities be held in lien-free accounts and shielded from claims by third parties should a firm collapse. Had Merrill Lynch collapsed at any point, customers would have been exposed to significant risk and uncertainty of getting back their own securities.
“The rules concerning the safety of customer cash and securities are fundamental protections for investors and impose lines that simply can never be crossed,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.
“Merrill Lynch violated these rules, including during the heart of the financial crisis, and the significant relief imposed reflects the severity of its failures.”
(https://www.sec.gov/news/pressrelease/2016-128.html)

FINED US$42 MILLION FOR FRAUD
Last March, Merrill Lynch and its parent company, Bank of America, agreed to pay a record US$42 million fine to the State of New York for fraudulent activity related to its electronic trading services.
New York Attorney General Eric Schneiderman announced that an investigation of the Bank’s electronic trading services revealed a fraudulent “masking” scheme, designed to mislead clients about the entity responsible for executing in-house orders, the state said.
Though the Bank told its customers it was executing trade orders themselves, they were in reality routing them to electronic liquidity providers, including Citadel, Two Sigma and Knight. The bank used masking codes to make the trades.
“Bank of America-Merrill Lynch went to astonishing lengths to defraud its own institutional clients about who was seeing and filling their orders, who was trading in its dark pool, and the capabilities of its electronic trading services,” Schneiderman said in a statement.
The investigation showed that Bank of America and Lynch began the masking scheme as early as 2008 and that at least 16 million client orders were affected.
In addition to masking efforts, including the production of false transaction reports, investigators with the attorney general’s office in New York uncovered “other inaccurate representations to investors about the Bank’s electronic trading services” — all part of a broader effort to make the bank’s “electronic trading services look more sophisticated and safer than they really were.”
Officials with Bank of America-Merrill Lynch claim they began to address transparency problems related to their electronic trading services several years ago.
“The settlement primarily relates to conduct that occurred as long as 10 years ago,” the Bank told CNBC in an email. “At all times we met our obligation to deliver the best prices to clients. About five years ago, we addressed the issues concerning communicating to clients about where their trades were executed.” (https://www.upi.com/Bank-of-America-Merrill-Lynch-agrees-to-pay-NY-42-million-fine-for-fraud/7851521905381/)

ANOTHER FRAUD CASE
Last June, the Securities and Exchange Commission announced that it will be fining Merrill Lynch, US$5.2 million. The fine stems from deals involving residential mortgage-backed securities (RMBS) and the broker-deal will also have to pay back $10.5 million to customers.
Over the course of its investigation, the SEC found that Merrill Lynch had lied to its customers regarding the pricing of RMBS. Traders and salespeople working for the firm were able to convince customers to overpay for the securities by lying about how much they had paid for them.
On top of this, the same traders and salespeople massively overcharged for commissions. The SEC noted that, in some cases, they received double what they should have.
Merrill Lynch will be charged as these traders and salespeople violated antifraud securities laws. The SEC found that the company did not fulfill its supervisory duties and was therefore unable to prevent the law-breaking from occurring.
The company did not admit or deny any of the investigation’s findings. Instead, it agreed to pay a $5.2 million fine to the SEC and pay back $10.5 million to the customers involved in the fraudulent transactions.

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